Pension cuts hurt employee recruitment and retention

In 2012, Palm Beach, Florida decided to close all of its public pension plans and move current and future employees to a hybrid defined benefit-defined contribution plan. This move gutted retirement security for public employees. In response, Palm Beach experienced an exodus of police officers and firefighters over the next four years. The loss of employees was so staggering that Palm Beach returned to defined benefit pensions for police officers and firefighters in 2016. The National Institute on Retirement Security (NIRS) recently released an excellent case study of Palm Beach and its pension cuts.

Palm Beach operates three public pension plans: one for general municipal employees, one for police officers, and one for firefighters. All three were traditional defined benefit pension plans and all three were closed in 2012. The NIRS case study focuses on the response by police officers and firefighters to the closing of the plans and the subsequent actions taken by the city.

One noteworthy fact about the decision made by the Palm Beach Town Council in 2012 is that it was not just future hires that were affected; current public employees were also forced from the defined benefit plan into the new hybrid plan. This fact alone accounted for many of the problems faced by Palm Beach after closing the plans. There were a significant number of police officers and firefighters who were already vested in their pension, meaning they could leave their jobs and still retain the pension benefits they had earned.

As Palm Beach learned the hard way, public employees value their pensions and will respond when their pensions are cut. In the aftermath of the pension cuts, 20 percent of the town’s public workforce retired. Additionally, another 109 police officers and firefighters left before retirement over the next four years. Even mid-career and early career public safety employees left, either with their vested pension benefits or taking a refund if they were not vested. These are unprecedented numbers compared to anything the town had experienced before.

Ultimately, the Palm Beach Town Council realized they had made a major mistake in closing the pension plans. In 2016, the Council voted to return to a defined benefit pension plan for police officers and firefighters. General municipal employees remain in a hybrid plan, but with a more generous defined benefit component. The lesson of Palm Beach confirms the lesson learned elsewhere: public employees value their pensions and they will react when those pensions are cut. Public pensions help recruit and retain public employees. If you need proof of this, look no further than Palm Beach, Florida.

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